Traders Boost Bullish Bets in The U.S. Oil Options

Before Russia invaded Ukraine last week, the global oil market was already tight. Heretofore sent benchmark Brent and U.S. West Texas Intermediate (WTI) crude futures soaring over 15% to around 10- and 14-year highs, individually.

The United States and allies imposed sanctions on Russia that, while not explicitly targeting Russia’s daily exports of 4 million to 5 million barrels, has hardly hampered its capacity to sell its crude. Russia’s exports account for approximately 8% of the global oil market, trailing only Saudi Arabia.

Traders see a chance to buy options, bets on a direction of a commodity’s price, and options volumes have swelled in recent weeks, particularly since the invasion on Feb. 24.

Between Jan. 19 and Feb. 9, the numeral of U.S. crude options contracts traded on CME averaged approximately 126,000 daily. Since then, the average has spiked to 178,000 daily, as stated by exchange data, including the first two days in March, when more than 240,000 contracts traded.

Analysts stated that activity has been most vigorous in call options, a bet on rising U.S. crude prices in the coming weeks and months.

Brent Expected to Average $110

It was noted that volumes for options that pass every week have also increased as the price of crude has advanced.

Brent briefly touched about $120 a barrel on Thursday, its highest after 2012. WTI surpassed $116, a level not witnessed since 2008, before pulling back.

JP Morgan analysts stated on Thursday that Brent would average $110 a barrel in the second quarter.

Options traders can also capitalize on volatility to benefit without ever buying crude oil futures contracts.